Laying the foundation.

For Gateway, 1999 was the year that we laid the building blocks for an even stronger 2000 and beyond.

It was a year also marked by strong sales, solid financial results and continued strength in our brand. In 1999, Gateway's U.S. consumer business enjoyed 42% unit growth as the company solidified its position as the number-one seller of consumer PCs in the country based on revenue share*. That growth was powered by innovative new products, aggressive Gateway Country® store expansion and a more than 100% increase in sales through Gateway.com over 1998.

We also made great progress in the business-to- business arena, particularly in each of our three core target markets. We grew units 22% in education, 20% in government and 22% in small and medium business.

Overseas, our business in Asia also continued to ramp as we posted unit growth of 65% for the year. The turnaround of our business in Europe remained on track as well, with unit growth of 12% for the year.

But more importantly, 1999 was the year that we described what we wanted to build, then started building it.

In February 1999, we unveiled our beyond-the-box strategy, detailing our move to create multiple, interwoven areas of connection to our clients across our unique, multichannel distribution system. At the time, we said these connections would strengthen our lifelong relationships with clients and also drive a richer, more diverse revenue stream.

Well, a year is an eternity in this industry, and way back in early 1999, no one else was talking about moving beyond the box or the "clicks and mortar" retail approach we pioneered with Gateway Country stores nearly three years ago. A lot of people are talking about all of those things now.

The good news is that we achieved first-mover status in our beyond-the-box strategy. That allowed us to solidify those client relationships early and further establish Gateway as an innovative partner in the new economy. We also learned a lot along the way and created some great new relationships with best-of-breed partners across a number of industry sectors.

Here are some highlights:

Internet Access/Portal.

We started the year by becoming the first PC maker to bundle Internet access with the sale of a computer, and our subscriptions to the Gateway.net service took off. By year end, we had a million ISP subscribers, making us the fastest growing fee-based Internet service provider in the United States.

In October, we struck an industry-changing deal with AOL that gave us the infrastructure to handle our explosive ISP growth. The deal also gave us access to AOL's world-class content and portal capabilities. Giving our clients a choice of AOL or the Gateway.net® service further accelerated our ISP growth, and we exited the year with more than a million joint subscribers as our ISP attach rate rose from 35% to 50% in the fourth quarter.

Peripherals/Software.

Also early in the year, we became the first PC maker to launch an online software and peripheral store. We took a minority stake in NECX, an industry-leading e-commerce innovator, and together launched SpotShop.com, offering more than 30,000 software titles and products to our clients.

Training.

In 1999, we stepped up our training efforts considerably, launching online training and CD-based training, in addition to our instructor-led training in the more than 400 classrooms we have in Gateway Country locations throughout the U.S. We refocused those instructor- led courses against the novice user and, by the end of the year, our attach rates for training in Gateway Country locations was over 60%.

Systems.

Obviously, our bread and butter has long been the PC, and systems sales still account for the lion's share of our revenue and income stream. On that front, we led the way in 1999 once again with some great product innovations, including our space-saving, all-in-one Gateway Profile" PC and our new all-in-one Gateway Astro" PC, whose legacy-free connections make the leap to the Internet a snap. On the portable front, our Solo® 9300 met with rave reviews in both the consumer and business arenas.